The world’s energy mix is undergoing a slow but very real transitional period as energy planners seek to incorporate renewable energies into existing infrastructures at ever increasing rates. As a way to provide a framework for what to expect over the next twenty years, the Texas Clean Energy Coalition (TCEC), in conjunction with the Mitchell Foundation and economists at The Brattle Group, developed a study called Exploring Natural Gas and Renewables in ERCOT Part II: Future Generation Scenarios for Texas, to test energy models based on the best current information regarding energy markets, electric grids, and government policy.

TCEC concluded that ERCOT (Electric Reliability Council of Texas) power systems are “very likely to combine substantial amounts of both renewable energy and gas-fired power, and together can provide all new generation.”

“The economic and environmental attractiveness of these electricity sources, the strong Texas resource base, and the evolution of power markets and systems all point to these energy options as the likely foundation of all new supplies to the ERCOT system in the next several decades ahead.”

While these results are bullish for natural gas and renewables, there is a great deal of information to parse in order to come to an accurate conclusion of where our energy future lies.

Study The analysis was conducted by simulating the ERCOT Expansion Cycle through 2032 using six likely scenarios:

The scenarios were tested using data on generating units and fuel prices primarily from ERCOT, the U.S. Energy Information Administration and the Electric Power Research Institute. These inputs were then analyzed using two models, Xpand, which focused on market-driven decisions and cost-effectiveness, and PSO (Power Systems Optimizer), which looked to find the most reliable and efficient method of operation. Each model is then re-solved to determine the most profitable set of system additions.

Some assumptions were made (no major technological breakthroughs; energy storage tech will not be large-scale by 2032) and other factors were ignored (gas price uncertainty, unique impacts of rooftop or community-scale PV, co-locating PV and wind through CREZ lines). The models also did not incorporate risk-aversion, which the researchers admit, “creates a bias in our results in favor of greater natural gas plant additions than would be the case in a market where developers are significantly risk-averse.”

Their cost assumption for renewables during this period range from over $3,500/MWh for solar and $2,300/MWh for wind in 2012, to $1,300/MWh and $1,500/MWh respectively, in 2032. TCEC noted they took a conservative approach to renewable projections, while assuming that the Texas Renewable Standard Portfolio (RPS) rules - focused on the proportion of renewable energy required - will not change through 2032.

To keep the study as accurate as possible, it incorporates the developers’ own predictions of how fuel and technology costs will change, how ERCOT market rules will change and their effect on prices, how environmental or tax rules might change, and other factors that influence their predicted revenues.

Results The six results provided a few surprises when it comes to what our energy landscape will look like over the next two decades. From what can be seen, the “less likely” scenarios showed a business-as-usual approach, but are really only meant as control models as opposed to realistic options.

With no reserve requirement, capacity is greatly increased (along with carbon emissions) and with little growth in renewables until after 2028. When putting in place a reserve requirement, additional capacity is made available to market, but only due to older plants continuing operation. This has a profound negative effect on diversification of energy sources until after 2032, leaving renewables with just 8% of the market up to that point.

When implementing high gas prices (4% rise/year) with no reserve requirement, results show a significant reduction in the economic attractiveness of natural gas, serving to boost wind and solar installations. In this scenario, renewable supplies 25% of energy by 2028, while gas provides 29.7%.

The high gas prices and low renewable cost model brings the highest renewable capacity (up to this point) adding 23.8 GW of wind and PV by 2032. Among gas-fired plants, it was noted that nearly all future additions are likely to be combined-cycle gas turbines, due to their efficiency and flexibility. It’s easy to envision a scenario of rising natural gas prices when you consider the price impact of potential future natural gas exports.

The addition of a moderate federal carbon rule (50% CCS) to this high gas/low renewable environment shows an energy grid strikingly similar to the no reserve requirement case, but with relatively large reductions in carbon emissions. The resulting lack of diversification in energy sources within this model is mainly due to the carbon rule being low enough to keep from forcing the retirement of Texas coal plants, who are still able to operate profitably.

A stronger federal carbon rule (90% CCS), on the other hand, would have major ramifications within the Texas energy grid. Being required to capture 90% of CO2 output, the vast majority of ERCOT coal plants would retire in 2025. In place of the 30% capacity that coal used to hold, energy will rapidly shift to natural gas, clean coal and renewables, with 22 GW of wind added, along with 8 GW of solar by 2029.

This makes renewables the provider of over 43% of Texas electricity (6x that of the reference model). Although, in this scenario, natural gas must carry energy demand in the medium term, and provide 50% of total energy through 2025, before falling back to 25% in 2032.

TCEC notes their models indicate that this level of variable generation can be integrated with full reliability. In all, the strong carbon rule would allow nat. gas and renewables to account for 85.6% of total generation, the highest of any scenario.

Highlights The numbers produced in a high gas/low renewable price scenario with a strong carbon rule are likely the most surprising results. According to their charts (Figure IV-13), there is less than a $10 rise in wholesale power prices from the historical average ($70 as opposed to the expected $61). On the other end of the spectrum, the reference/no reserve requirements hit 2032 with a cost/kWh of $48.

In terms of the broader environment, the reference model would result in 218 million metric tonnes of CO2 released into the atmosphere, whereas strong federal limits would bring that number down to 60 million metric tonnes in 2032 (a reduction of 60% from 2012 levels). With current climate models predicting adverse effects from greenhouse emissions, this statistic is a vital one.

Conclusion The TCEC study offers a pragmatic assessment of the future Texas energy climate, proving that carbon sequestration rules and other environmental safeguards would not have a major effect on the ability of our energy systems to operate efficiently. Even with a very conservative estimate on cost/kWh for renewables, and the lack of consideration for technological breakthroughs (which are likely, to a certain extent), the models consistently showed a natural gas and renewable-dominated market through the mid-21st Century.

Even so, there are a few things readers should note before coming to their own conclusions. First, this study was underwritten by the Mitchell Foundation, whose patriarch, George Mitchell, was heavily invested in natural gas. In fact, he is credited with inventing the process of hydraulic fracturing, the profitable, but controversial shale oil extraction technique that has become a major point of contention among environmentalists and the Oil & Gas industry. Consequently, the study did not touch on the environmental impacts of natural gas, which is greater than many believe. This could present a minor conflict-of-interest, but nothing great enough to skew the results. Lastly, the study also fails to take into account the rise in popularity of Nuclear, a strong alternative energy that will likely play a larger role in power grids going forward.

A relative bias for natural gas aside, the study uses an extensive number of reliable inputs to offer important statistical insight into what we should expect over the next twenty years, and in doing so, giving us the ability to create the right power grid structure during an age of energy uncertainty.

I have been associated with the energy industry for 20 years, first as a Market Maker for some of the largest energy companies in the world, and now as an energy consultant to commercial, industrial and municipal entities.

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So this study, which was funded in part with natural gas money, finds that natural gas and renewables will grow in Texas, but no new nuclear will be built, in spite of the fact that EIA data (on which the study is partly based) says that cost of nuclear should be between that of gas and renewables.

They use a number of tricky assumptions to produce this result. The EIA says that natural gas is currently the cheapest source of new generation. This report de-favors gas by assuming its cost will escalate at "average annual rate of 2.9% and 4.0% in the reference and high gas cases respectively". Furthermore, it assumes that wind power will decrease in cost by 14.2% and solar will decrease by 45.6% by 2025. Nuclear, in contrast, is assumed to increase 5.5% in cost by 2025.

They assume some continuation in policy support for renewables. "... regarding the continuation of the wind PTC, we assume the tax credit will continue in its present form at a reduced rate over a four-year phase-out period...", and "...we assume that the current 30% investment tax credit for PV plants is available to all Texas additions through 2016 and then decreases to 10% for the remainder of the period." and "... the Texas renewable portfolio standard (RPS) rule currently in place remains unchanged through 2032, treating its goals as a firm requirement".

Importantly, other studies (like the NREL 20% wind study) found that transmission costs amounted to about 20% of the cost of windpower. From the overview of this report: "... we assume that transmission costs do not vary between resources scenarios". And page 21: "...the costs of these transmission upgrades were not charged to the new generation sources seen as the primary cause of the upgrade. Were we to change this treatment, it is likely that the new sources required to pay for these upgrades (primarily new wind plants) would be built significantly less frequently in our simulations...".

The report does not attempt to minimize the cost of electricity, but rather seeks to maximize profits for generators under its simulated market rules: "...the model simulates ERCOT’s dispatch of all plants and its market-clearing prices in all markets for each intra-hour period within each annual cycle.". The amount of reserve generation necessary to make the system reliable is assumed to be installed by mandate, which surely must force down the value of bids in the capacity market, so that effectively, wind and solar suffer minimal penalty against fossil or nuclear when they compete in the simulated market.

They also make the unsupported assumption that existing Texas nuclear plants will be closed after 60 years. This is reasonable for first generation reactors from the 1960s and 1970s which had poor economics due to small size (<600 MW) and immature designs, but the Texas reactors are relatively modern: Commanche Peak has two 1100 MW reactors which came on-line in 1990, and South Texas Project has two 1300 MW reactors from 1988, which are as likely to see life extensions plus power up-rates as they are to be closed.

When the report considers scenarios with a carbon emission control policy, instead of a cost on carbon or a portfolio standard (which would effect coal and gas proportionately), it considers only a CC&S requirement which is specific to coal. This has the effect of penalizing coal, with no cost impact at all for natural gas.

The result is a report that shows a rosy (upward trending) future for renewables while providing policy guidance which will help lock-in natural gas against competition from coal and nuclear. The natural variability of renewables will insure that natural gas is never seriously threatened by renewables.

I may be wrong but a big part of choosing CCNG over coal or nuclear when integrated with wind and solar is the quick response, part load efficiencies and capitol costs more than make up for the fuel price volatility. It seems a nuclear plant would preclude wind and solar because to be economical it needs to have a 90% or better capacity factor with peak generation for nuclear base load of gas.

A midwest IOU needs 300 to 500MW more by 2019. The only contenders are two competing gas generators looking to expand and a 100MW solar addition based at a number of substations that a judge recommended but must get final approval from the PUC.

"The result is a report that shows a rosy (upward trending) future for renewables while providing policy guidance which will help lock-in natural gas against competition from coal and nuclear. The natural variability of renewables will insure that natural gas is never seriously threatened by renewables."

I dislike being so cynical, but isn't that the point? And the net result is that we lock-in our current trajectory to climate disaster, albeit at a possibly somewhat slower rate.